Ask ten finance experts to come up with a value for a firm and you'll get 20 different answers. If you really can't afford to due a proper due diligence, perhaps you can't afford to buy the business. I don't want to sound harsh, but you should really get as much information as possible before doing something like this. People can talk all about postive NPV projects and that's great and all for a classroom, but a bit different when it's your skin in the game. These formulas are HIGHLY sensitive to even small variations in the inputs (discount rates, time horizon, non-diversifiable risk levels, sales growth, etc). What is the EBITDA yield? How reliable are those numbers? How much of a multiple over EBIDTA is the asking price? How stable or volatile are the sales and earnings over the past 3, 5, 10 years? Are the sales highly cyclical throughout any individual year? Why? Why not?
You also, like someone else said, need to consider the breakeven point, as well as whether the cashflows you generate in the early parts of the project will be enough to keep you in operation, or, if you'll need to kick in extra capital to keep things going and whether or not you have access to such capital. You also need to figure out exactly how much debt/leverage you can handle. In other words, you can make a negative NPV project a positive one if you extend the time horizon from 5 to say 10 years. Let's say you estimate that cashflows will be slow in the early years and increase from years 4 through 10. That means that for the first several YEARS of this investment, you'll be losing money. Can you afford that? The longer the horizon is, the less meaningful your estimate of a discount rate is for cashflows and the less accurate your cashflow estimates are.
Certainly there is a degree of risk (and potential reward) involved in anything like this. I just cannot stress enough the need to gather as much information as possible and to come up with SEVERAL different valuations, using several different methods and several different outlooks for sales growth and cashflow generation. Also, are you going to keep this bar "as is" or are you going to re-do the place and create a new name and aesthetic? If so, your upfront costs are higher and your cashflow growth assumptions may be less reliable initially.
Last edited by jets5ever; 09-04-2007 at 02:26 PM.